Starting a business often requires a loan, which means convincing a bank of your business model. A very well-prepared business plan is essential, but it alone is not enough. Banks take risks when lending to founders and expect borrowers to show a clear commitment to their own plans. Equity that founders contribute to the financing is one sign of that commitment.
As a rule of thumb, at least 15%, and preferably 20%, of the capital required for a startup should be contributed as equity. Various forms of public support are available, but they cannot fully replace ‘real equity.’ This means a lack of equity can cause a planned business to fail at the financing hurdle.
WiReGo’s advisory work shows that one possible way out of this dilemma is often overlooked. If you lack savings, you can also contribute assets in kind to startup financing. These are privately owned items directly relevant to the planned business, such as an existing lawnmower for a garden maintenance company. As well as that direct connection, recognition of assets in kind as equity requires the values stated in the business plan to be supported by purchase receipts or valuation reports.
A lack of cash is therefore no reason to abandon your planned startup prematurely. The WiReGo team is happy to help with questions on this topic.
